Is Obamacare Sustainable?

Richard Epstein*

Richard Epstein

Richard Epstein

It has been over five years since the Patient Protection and Affordable Care Act (ACA) was passed into law on March 23, 2010. Today, the major legal challenges are over. In 2012, the Supreme Court sustained the power of Congress to enact the law inNFIB v. Sebelius. Three years later, it held that the ACA allowed for the payment of subsidies for all applicants who enrolled through either the state or federal exchanges. Chief Justice Roberts wrote both decisions. They will not be overturned.

But if the legal battle over Obamacare is over, the economic battle over Obamacare has just begun. The issue here is simple enough. Can the plan, which has weathered the legal challenges, survive in today’s highly dynamic economic market? The prospects are uncertain to say the least. Some clear signposts indicate the answer is no. The ACA cannot succeed simply by securing first-time enrollments in its exchanges. Insurance policies are subject to annual renewals. The first year of operations will give information about how the second year will go.

On the insurer side, it has proved unclear whether the premiums collected have been sufficient to cover the incurred losses. No one yet knows how the various new types of coverage required by the ACA will be priced going forward.  For plans now running a deficit, belts have to be tightened.

On the insured’s side, a year’s experience could lead many customers to think that they pay too much for benefits they would rather not have. The point is especially true of people who are both healthy and young, from whom Obamacare exacts a heavy cross-subsidy that they won't pay year after year. Market rate insurance will always contain differentials that reflect these risk differences.  Liberals may decry the supposed inequity, but in so doing they overlook the decisive advantage of market rate plans.  They are stable in ways that Obamacare is not, because customers will not leave plans from which they derive a net benefit unless they can get a better alternative.

These forces are now exerting tectonic pressures in many, but not all states.  Across the country, many insurance companies are increasing their rates between 25 and 35 percent as they adjust to the “shock waves set off by the Affordable Care Act” in the marketplace. But the full story is necessarily far more complicated because a lot more goes into providing an insurance policy than setting the annual premium. Equally critical are the rules on coverage, how high the deductibles and copays are, where the plan facilities are located, and what the options are in the choice of physicians. And, of course, there is the tantalizing question of whether the current round of increases are one-shot adjustments, or whether they represent the onset of a consistent trend that will replicate itself in future years?

Without detailed information, it is not possible to access the peculiarities of the individual plans. But it is possible to predict that the slow death of Obamacare has become more likely. Most obviously, any premium increases within the exchanges can lead potential and current enrollees to direct their healthcare dollars elsewhere, perhaps by doing without any insurance at all or by signing up for Medicaid. Ironically, it will be hard to win these defectors back with advertisement or improvements in plan coverage, because these options are tightly constrained by Obamacare, which by design limits competition only to the choice of various care levels. Ordinary markets allow for innovation on all dimensions of service, and thus have a resilience that is all too lacking in Obamacare.

Here are some instructive results. As of early June, some 1.5 million people dropped out of the exchanges by failing to pay premiums, reducing the number covered from a February 2014 high of 11.7 million enrollees to 10.2 million four months later. That figure was still a substantial increase over the 6.3 million people insured at the end of 2014. But in the next three months, the downward trend continued so that by September 2015, the number of enrollees tumbled to 9.9 million, which was still above the administration’s goal of having 9 million on the rolls by the end of this year. But the current negative trend line is all the more striking given that some 8.3 million subscribers receive a subsidy of about $270 per month, which works out to a program wide subsidy of about $224 billion per year.

At this point, most of the gain in coverage, about 71 percent of the total, has come through the expansion of Medicaid, which in general offers inferior care to that provided by private insurance carriers. The decline in enrollees on the exchanges represents a displacement of ordinary people from insurance plans that they chose for those which come with a government stamp of approval.

The second straw in the wind is the looming failure of the private co-op plans that were intended in 2010 to offer some stiff competition to the commercial healthcare plans that were otherwise expected to dominate the overall system. The most recent casualty—the ninth to date out of a total of 23—has been Tennessee’s Community Health Care Alliance, with some 27,000 subscribers now forced once again to find coverage in order to stave off payment under the Obamacare individual mandate. Most, if not all, of the remaining 14 plans are also likely to go belly up.

The recent pattern of events raises two questions. First, how did we get here? Second, where do we go next?

The difficulties in the healthcare exchanges can be traced back to the original design choices of Obamacare. Its fundamental conceit was that a federal program could allow for the delivery of higher quality care at lower cost than could be obtained from ordinary private health insurance carriers. To make good on that claim, the centerpiece of the ACA was its benefits package, which offered a list of ten essential benefits covering ambulatory, emergency, laboratory, pediatric, preventive and wellness services, maternal and newborn care, mental health and substance abuse disorder, prescription drugs, rehabilitative and habilitative services, and devices. Some of these items, like mental health coverage, are exceedingly hard to provide because of the difficulty of measuring and monitoring diagnosis and cure. Others, like habilitative services, were rarely if ever offered in the voluntary market.

It is, however, one thing to prepare a list of services. It is quite another thing to specify the level and types of care required in each of the separate categories. Today, officials at the Department of Health and Human Services who have no bottom-line responsibility make those choices. Their tendency is to aim for the moon by requiring coverage that private firms would never offer voluntarily. After all, private firms respond to adverse selection, whereby people who are in greatest need of coverage will flock to the richest plans. They are also attempting to control moral hazard, which implies that the availability of insurance increases the likelihood of the occurrence of the insured event. The government takes it as an article of faith that private plans are inefficient. But that unfortunate mindset leads to additional government oversight. The upshot is reduced business flexibility coupled with an additional layer of administrative costs.

In principle, the burdens could become lighter over time as firms learn how to adjust to the government programs. But if the government continues to push hard, that won’t happen. It is therefore disheartening to know that Obama’s response to the high premiums is the following: “If commissioners do their job and actively review rates, my expectation is that they’ll come in significantly lower than what’s being requested.” Idle talk like that from a ratemaking amateur will only aggravate the problem. It is precisely the risk of insufficient rate hikes that undermines the stable healthcare environment needed for these markets to work. The only way in which to reverse these pressures is to go for partial deregulation.

The only difficulty with a proposal for market liberalization is that it cannot happen in an Obama administration. Given its inflexible commitment to high government involvement in the healthcare market, the likely response of the Obama administration to its own failure is to renew its call for a single-payer plan that the less radical Democrats of 2010 were not prepared to endorse. But the utter decimation of the centrist bloc of the Democrats in Congress means that the new claim will be that the exchanges and co-ops failed because they did not go far enough. Sadly, however, any single-payer plan will fall prey to all the pathologies of over-ambition, given that monopoly government agencies cannot manage complex businesses that have frustrated the implementation of the more modest Obamacare plan.

In the absence of any meaningful market role for private healthcare insurers, it will be no longer possible to benchmark public norms to sensible standards of private behavior. But on this issue, progressives believe in the one-way ratchet: When markets fail, turn to government regulation. When government regulation fails, turn to more government regulation.

In the midst of this chaos, the fundamental truth about the superiority of competitive markets is effectively shielded from view. Markets work because they match supply with demand. Consumers vote with their feet and their wallets. They fully know that there is never a perfect balance between the amount paid and the package of benefits secured. But they also know, or at least intuit, that relevant trade-offs between price and quality of service—whether in the choice of doctors, locations, coverage, or deductibles—must be made at the margin. Governments are tone deaf to marginal adjustments.

There is, however, this ray of hope: The high level of deductibles and the reduced level of coverage could help stronger market institutions emerge from the ashes of today’s government failures. As mandated health plans start to crash, people will be left to their own devices in the marketplace. Some will opt for concierge care, whereby they cut out the government middleman and pay a direct monthly fee to doctors for the privilege of having direct personal relations. As with all such models, as the usage increases, the price starts to drop to the point where it could easily make sense to avoid government plans altogether.

And if that does not work in all cases, there are all sorts of new walk-in clinics like City MD that offer cheap and efficient healthcare with plans that anyone can understand: “Need A Doctor? Just Walk In. No Waiting & Open 365 Days A Year. Over 40 Locations. No Appointment Needed. See A Doctor Immediately.”

Back in 2010 no one thought that healthcare markets were perfect. But we took the wrong fork in the road. Instead of opting for systematic deregulation in healthcare and insurance markets, we opted for cradle-to-grave regulation. We need to have the courage to recognize and correct that mistake now.

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

SUPREME COURT RULES AGAINST PLAINTIFFS ON ACA SUBSIDIES

The Supreme Court decided, in a 6-3 decision by Chief Justice Roberts, that federal subsidies are available on exchanges set up by the federal government, despite potentially conflicting statutory language. The Chief Justice's decision was joined by Justices Kennedy, Ginsburg, Breyer, Kagan, and Sotomayor. 

The Chief Justice's majority opinion noted: "Petitioners’ arguments about the plain meaning of Section 36B are strong. But while the meaning of the phrase “an Exchange established by the State under [42 U. S. C. §18031]” may seem plain “when viewed in isolation,” such a reading turns out to be “untenable in light of [the statute] as a whole.” Later, the Chief Justice added:

After telling each State to establish an Exchange, Section 18031 provides that all Exchanges “shall make available qualified health plans to qualified individuals.” 42 U. S. C. §18031(d)(2)(A). Section 18032 then defines the term “qualified individual” in part as an individual who “resides in the State that established the Exchange.” §18032(f)(1)(A). And that’s a problem: If we give the phrase “the State that established the Exchange” its most natural meaning, there would be no “qualified individuals” on Federal Exchanges. But the Act clearly contemplates that there will be qualified individuals on every Exchange. Cite as: 576 U. S. ____ (2015) 11 Opinion of the Court. As we just mentioned, the Act requires all Exchanges to “make available qualified health plans to qualified individuals”—something an Exchange could not do if there were no such individuals. §18031(d)(2)(A). And the Act tells the Exchange, in deciding which health plans to offer, to consider “the interests of qualified individuals . . . in the State or States in which such Exchange operates”—again, something the Exchange could not do if qualified individuals did not exist. §18031(e)(1)(B). This problem arises repeatedly throughout the Act. See, e.g., §18031(b)(2) (allowing a State to create “one Exchange . . . for providing . . . services to both qualified individuals and qualified small employers,” rather than creating separate Exchanges for those two groups).1 These provisions suggest that the Act may not always use the phrase “established by the State” in its most natural sense. Thus, the meaning of that phrase may not be as clear as it appears when read out of context.

The Chief Justice's opinion concluded that, "Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. Section 36B can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt."

Justice Scalia's dissent, joined by Justices Thomas and Alito, was blistering. The second most senior Justice wrote: 

"Words no longer have meaning if an Exchange that is not established by a State is “established by the State.” It is hard to come up with a clearer way to limit tax credits to state Exchanges than to use the words “established by the State.” And it is hard to come up with a reason to include the words “by the State” other than the purpose of limiting credits to state Exchanges. “[T]he plain, obvious, and rational meaning of a statute is always to be preferred to any curious, narrow, hidden sense that nothing but the exigency of a hard case and the ingenuity and study of an acute and powerful intellect would discover.” Lynch v. Alworth-Stephens Co., 267 U. S. 364, 370 (1925) (internal quotation marks omitted). Under all the usual rules of interpretation, in short, the Government should lose this case. But normal rules of interpretation seem always to yield to the overriding principle of the present Court: The Affordable Care Act must be saved."

In perhaps the most memorable line, he expressed frustration as he wrote "Having transformed two major parts of the law, the Court today has turned its attention to a third. The Act that Congress passed makes tax credits available only on an 'Exchange established by the State.' This Court, however, concludes that this limitation would prevent the rest of the Act from working as well as hoped. So it rewrites the law to make tax credits available everywhere. We should start calling this law SCOTUScare." 

The decision marks the second decision in three years to uphold the law from a potentially fatal attack. In 2012, the Supreme Court ruled in NFIB v. Sebelius that the individual mandate was constitutional not under the Commerce Clause of the Constitution, but rather as a tax. 

Consider This A Warning: A New Legal Threat to Obamacare Brewing in the D.C. Courts?

Thomas Warns*

This week, the most important Affordable Care Act case since NFIB v. Sebelius is being argued in a Washington, D.C. courtroom. While the Supreme Court is hearing oral arguments in Sebelius v. Hobby Lobby, a case which touches on important notions of individual liberty, free exercise of religion, and corporate rights, the far more important case is being argued in the D.C. Circuit Court of Appeals: Halbig v. Sebelius (side note: does anyone get sued as often as poor Kathleen Sebelius?).

What makes the Halbig case such a big deal? Unlike Hobby Lobby, it actually has the potential to upend the entire law. The Wall Street Journal summed up the case succinctly:

The Affordable Care Act—at least the version that passed in 2010—instructed the states to establish insurance exchanges, and if they didn't the Health and Human Services Department was authorized to build federal exchanges. The law says that subsidies will be available only to people who enroll "through an Exchange established by the State." The question in Halbig is whether these taxpayer subsidies can be distributed through the federal exchanges, as the Administration insists.

This new challenge to the Affordable Care Act could eliminate subsidies for people signing up through the 34 federally-run healthcare exchanges. A recent estimate from the Department of Health and Human Services indicates around 85% of people signing up through federal exchanges receive a subsidy of some kind; it’s no wonder that one supporter of the law commented “probably the most significant existential threat to the Affordable Care Act.”

Surely this was a mistake in language that was overlooked? No, the wording was intended by Congress. The anti-commandeering principle, reaffirmed by the Supreme Court in New York v. United States, states that the federal government may not commandeer the sovereign state governments and force them to undertake a federal regulatory regime. Thus, the federal government would have run afoul of this unquestioned principle if it required the states to set up exchanges. Instead, they offered subsidies as an incentive for the states to set up their own healthcare exchanges.

At the District Court level, the judge sided with the government and stated that the clear language about the subsidies for state exchanges was essentially surplusage. The judge indicated that he was interpreting the law in this way in order to preserve the central purpose of the ACA, which was to provide low cost healthcare to all Americans, and further that his reading of the ACA was the one compelled by the law. But as Jonathan Adler (who first raised this issue with the law last year) points out, the text of the law indicates that the federal government wanted the states to set up their own exchanges, and that the subsidies were just one of the ways the law encouraged the states to act. Legislative history also shows that it was not oversight that there were no subsidies for federal exchanges, but that it was an active issue proposed by two Democrats that supported the ACA and wrote amicus briefs for the government in this case.

The three judge panel of the D.C. Circuit Court hearing this case includes a George W. Bush appointee, a George H.W. Bush appointee, and a Jimmy Carter appointee, which seems favorable to the plaintiffs. If the government loses however, they could ask for an en banc review by the entire D.C. Circuit, which would likely be more favorable – if you recall, the Senate recently rewrote the filibuster rules in order to fill several vacant seats in that Circuit with liberal judges. Whether the case ever reaches the Supreme Court remains to be seen, however the longer that takes the better for supporters of the ACA; the more entrenched the law becomes, the harder it will be to remove.

The Affordable Care Act has been marked by lawless implementation for years now. The President and his executive agencies have altered, modified, and delayed important aspects of the law unilaterally so many times now that one almost forgets it was a law passed by Congress, just like any other law. The House Ways and Means Committee investigated this decision by the IRS and HHS to include subsidies in spite of the law’s text, and found it would cost taxpayers $500 billion over the next decade. The judiciary should do its part, and enforce the law as Congress passed it, not as the President and his agents would like it to be. Considering the chorus of smug commenters from the left shouting “It’s the law!” it only seems fair that those on the right tell their liberal friends be careful what you wish for because right now it is the liberals who are desperately avoiding enforcement of the law. 

*Thomas Warns is a J.D. Candidate, class of 2015, at NYU School of law, Staff Editor on the NYU Journal of Law & Liberty , and author of the weekly column "Consider This a Warning."

Rethinking the Contraceptive Mandate

Richard Epstein

Professor Richard Epstein

Professor Richard Epstein

Nowhere in American life are the ideological cleavages between the left and the right so apparent as in the looming dispute over the constitutionality and propriety of the Patient Protection and Affordable Care Act’s contraceptive mandate. The mandate requires business employers, both individual and corporate, to supply (at their own expense) their female employees with the full range of “preventive health services” on matters dealing with contraception, sterilization, and abortion.

This March, the Supreme Court will hear oral arguments in three cases concerning the mandate. In play are the religion clause of the First Amendment (“Congress shall make no law respecting an establishment of religion or prohibiting the free exercise thereof”) and a key provision of the Religious Freedom Restoration Act of 1993 ("Government shall not substantially burden a person's exercise of religion even if the burden results from a rule of general applicability," unless it chooses the least restrictive means to advance a compelling state interest).

The lower court decisions are hopelessly divided on how these two sources of law apply to the contraceptive mandate. The Tenth Circuit in Hobby Lobby Stores v. Sebelius sided with the challenge to the mandate on free exercise grounds, while the Third Circuit in Conestoga Wood Specialties Corp. v Sebeliusand the Sixth Circuit in Autocam Corp. v. Sebeliushave squarely rejected it. The legal situation has become even more knotty because of the well-publicized brief filed by Professor Marci Hamilton of the Cardozo Law School insisting that any exemption of religious organizations from the neutral requirements of the mandate should be struck down as an impermissible establishment of religion, and that the Religious Freedom Restoration Act itself is unconstitutional under Justice Scalia’s well-known decision in Employment Division v. Smith(1990), which upheld a neutral Oregon statute prohibiting the ingestion of Peyote by members of the Native American Church as part of their regular religious activities.

Current Law vs. First Principles

The acrimonious debate over the constitutionality of the contraceptive mandate takes place in the context of a legal framework announced by the late Justice William J. Brennan in the 1984 case of Roberts v. United States Jaycees. The overriding issue in this case was the extent to which the principle of freedom of association should yield to the social imperative of antidiscrimination enacted in the Minnesota Human Rights Act. The law prohibited discrimination on the grounds of sex in any place of public accommodation, which included the Jaycees (a community civic organization that refused to admit women as voting members).

Brennan’s influential decision divides the full range of associations into three classes. In the first are intimate ones, like marriage, where the principle of freedom of association overrides the antidiscrimination norm. At the opposite pole lie ordinary commercial institutions; they are subject to the various antidiscrimination laws, including Title II of the Civil Rights Act of 1964, which deals with public accommodations, and Title VII, which addresses employment discrimination. In the middle lie an uncertain group of expressive nonprofit organizations. Roberts held that the Jaycees, as a large impersonal organization, was properly subject to the public accommodations laws. Sixteen years later, in Boy Scouts of America v. Dale, a deeply divided Supreme Court refused to apply New Jersey’s antidiscrimination law to the Boy Scouts in light of its professed moral and religious views on homosexuality.

Unfortunately, this ad hoc approach to freedom of association blocks the rational development of constitutional doctrine. In line with the general classical liberal position, the only justification for the application of the nondiscrimination provision is that it serves as a counterweight to the exercise of monopoly power of the sort once exercised by common carriers. But since we’re dealing with employers, not common carriers, the classical liberal position converges with the libertarian view in denying the state any right to meddle in the internal affairs of a voluntary association.

Allowing freedom of association in competitive markets generates a succession of win/win exchanges for all parties. We know all too well that a diverse citizenry has no uniform preferences on key social issues, some of which are economic, but many of which are religious and moral. In these contested areas, everyone is free to try to persuade others of the errors of their deeply held convictions—but, in the end, people hold fundamentally different worldviews.

Holmes’s Lochner Mistake

In his famous 1905 dissent in Lochner v. New York, Justice Oliver Wendell Holmes stated correctly that a constitution “is made for people of fundamentally differing views,” from which he then drew the fundamentally wrong-headed conclusion that our Constitution “is not intended to embody a particular economic theory, whether of paternalism and the organic relation of the citizen to the state or of laissez faire,” which for these purposes is the functional equivalent of the classical liberal position. But that gets it backwards. It is precisely because preferences diverge that we need the laissez-faire; otherwise, legislatures will bow to the will of the majority to create uniform results. In Lochner, Holmes voted to uphold a 10-hours-a-day maximum hours law, which ultimately protected union workers from their nonunion rivals.

Yet the contraceptive mandate is, if anything, more intrusive when it forces all employers to bend to the will of the majority in areas of fundamental disagreement. The irreducible division of sentiment is the best reason to protect minority groups from legislative majorities. Outside the common carrier context, government coercion increases the likelihood that many private contracts will be win/lose affairs, which sets up conditions of partisan strife within firms.

Uniform Theory of Contract

In contrast, the classical liberal theory starts from the explicit proposition that the parties should decide the terms of their own contracts in light of their preferences. This approach leaves no place whatsoever for Justice Brennan’s tripartite classification in Roberts. None of these voluntary organizations have monopoly power, and all of them forge extended associations of members who come together on mutually acceptable terms. The correct role of the law is to reduce the transaction costs needed to form these agreements, not to instruct people on matters of race, sex, age, or anything else.

Critics of this view often claim that free association allows men to exclude women, whites to exclude blacks, and straight people to exclude gay people. That characterization is only half correct, because it ignores the flip side whereby blacks can exclude whites, women exclude men, and gays exclude straights. It also ignores the way in which voluntary associations can advance their own affirmative action programs without fearing blowback from the state. The members of all affinity groups express support for their mission. Elsewhere, they eagerly join many organizations with broader membership bases. Classical liberalism just lets them decide which groups to join and why.

It is sometimes said, however, that this approach necessarily ignores the costs borne by those excluded from these associations. Again, the point is only half true. No transactional obstacles block expanding the membership of any organization. Therefore, if the gains to outsiders were greater than the losses to insiders, all subjectively measured, a win/win exchange could be arranged that benefits all parties. The refusal to extend these offers to outsiders is potent evidence that the losses to insiders from forced association outstrip the gains to outsiders.

Nor does the result change once we take into account preferences of nonmembers. We would never make individuals abandon their religious beliefs because of the disapproval of others, even as we subject them to the normal rules against aggression toward third parties or the abuse and neglect of children. Why then should that disapproval disrupt their voluntary organizations? Majority indignation offers the greatest threat to civil peace if it leads to laws that squash vulnerable organizations that don’t have the clout to survive the political storm.

Revisiting the Contraceptive Mandate

One depressing feature of the misguided constitutional debate over Obamacare was that it started from the common assumption that any general “freedom of contract” objection to the statute was dead-on-arrival. This dubious premise warps the entire constitutional discourse. A robust interpretation of freedom of association blocks the contraceptive mandate, not just for religious organizations, however defined, but for every group, regardless of its purposes or members. Any group that wants to supply contraceptive services is, of course, free to do so. But any group that opposes the mandate is free to go its separate way. Civil peace is preserved because no one faction or interest group can out-muscle any other.

Without the general baseline of freedom of association, opponents of the mandate now only have their narrower free exercise claim. That raises a new set of irrelevant disputes. Can Hobby Lobby, Conestoga Wood, and Autocam assert their free exercise rights as corporations? Has the Obama Administration offered a sound definition of a “religious employer” not subject to the act? Does the strength of an organization’s religious convictions influence its right to a statutory exemption?

First, corporate status does not matter one way or the other. Corporate shareholders should not be forced to surrender their religious and associational liberties on receipt of a state charter, even if they can be rightly asked to take out corporate liability insurance to protect outsiders injured by corporate activities. The incredible array of private businesses defeats any regulatory definition of a religious employer. Nor should federal judges be asked to evaluate the bona fides or intensity of any firm’s private religious beliefs.

The broad account of freedom of association also undercuts the dubious charge that opposition to the contraceptive mandate wages a war on women, not all of whom, we must remember, support the contraceptive mandate. Freedom of association ends wars; it does not start them. The correct baseline does not guarantee any package of healthcare benefits to any person, but leaves that topic to negotiation between parties. In a competitive world, firms can compete by offering or denying particular benefits, without the state having to second-guess its choices. Offering contraceptive services to women goes beyond the valuable insurance function of risk pooling, for providing any service free of charge only introduces dangerous cross-subsidies into the system. The higher cost of healthcare for women of childbearing age does not warrant this cross-subsidy any more than age differentials justify the all-too-destructive system of community rating.

This correct view of freedom of association also lays bare the dangerous argument made by Marci Hamilton on behalf of the ill-named “Freedom From Religion Foundation” that the exemption of religious organizations from generally applicable commands of law is itself an unconstitutional establishment of religion. No one wants to prohibit her organization from supplying contraceptive services to its employees. But classical liberals do want stop the government from forcing people who believe in religious freedom to sacrifice their own beliefs.

Hamilton’s extravagant claim is only plausible in a world in which the state is free to force ordinary businesses to knuckle under. But once all individuals have equal rights of association across the entire range of human endeavors, the establishment issue disappears. It should be flatly unconstitutional for the state to force these mandates on any private organization period. If so, then there is no illicit preference for religious groups when they receive the same protection for their organizations that are given to other groups. But there is a manifest intrusion into ordinary religious liberties by forcing them to bear these costs.

The moral of the story should be clear. It is not possible to deviate in part from the classical liberal principles of freedom of association and hope that the resulting confusion will be ironed out down the road. The key defect in the central premise leads to indefensible distinctions and to second-best solutions, all of which should be rejected out of hand. In this context, religious liberty is lost by the imposition of an employer mandate. The entire mandate should be struck down root and branch. 

The Shutdown and the Rollout

Judge Andrew P. Napolitano*

Here is a quick pop quiz. Which presented more harm to human life and personal freedom: the four-week partial shutdown of the federal government last month or the rollout of Obamacare this month?

Judge Nap pic.png

Obamacare is the greatest single expansion of federal regulatory authority in American history. In one stroke, it puts 16 percent of American economic activity -- virtually all of health care and health insurance -- under the thumb of federal bureaucrats. It dictates the minimum insurance coverage that everyone in the United States must have.

It punishes severely, without a hearing, anyone who deviates below the prescribed minimum. It forces nearly all Americans to acquire coverage in a one-size-fits-all policy, including coverage for events that cannot occur.

Obamacare was passed by both houses of Congress with support from Democrats only, using parliamentary tricks, rather than straight up or down votes. And all the Democrats voted for it after President Obama promised them and the American people ad nauseam that if they like their current doctor and if they like their current health insurance, they would be able to keep them under Obamacare.

The law was found constitutional by the Supreme Court only after the chief justice -- who acknowledged in his opinion in the case that Congress lacks the authority to compel people to engage in interstate commerce by forcing them to purchase a good they don’t want -- changed his mind on the ultimate outcome of the challenge. In order to save the law from imminent constitutional extinction, he created a novel legal theory, and he persuaded the four progressives on the court to join him.

They ruled that the punishment for the failure to obtain the level of health care coverage that the law requires is actually a tax. Then the court ruled that because Congress can constitutionally tax any event, it can tax nonevents (like the failure to purchase health insurance), and so the entire scheme is constitutional because it is really just a tax law.

The Supreme Court, lawyers sometimes say, is infallible because it is final; it is not final because it is infallible. I am a student of the court, and I revere it. It can change the laws of the land, but it can’t change the laws of economics. And so, when Obamacare ordered all insurance carriers in the land to cease offering health care plans that provide insurance coverage below the federally mandated minimum, they naturally began to cancel those plans. And when the new health care exchanges that Obamacare established failed to find coverage for those formerly insured by the substandard plans, those who had these plans and liked them suddenly were told that on Jan. 1, 2014, when Obamacare becomes effective, they will have no health insurance. The old insurance coverage will be illegal, and there is no new coverage for them.

Why were these substandard plans canceled when the president repeatedly promised that they could be kept? Didn’t the president know that he was not being truthful when he signed a bill into law that mandated minimum coverage, yet promised that plans that failed to meet that minimum coverage could survive the law? How is it that emails from the West Wing to the White House and legal briefs filed by the Department of Justice defending Obamacare in various federal courts acknowledged that millions would lose the doctors and the coverage that they liked?

One of the reasons many Americans had their policies canceled this month is the failure of those policies to conform to the new federal minimum requirements. At the heart and soul of Obamacare is the power of bureaucrats to tell everyone what coverage to have. At the core of Obamacare is the removal of individual choice from the decision to purchase health care coverage. The goal of Obamacare is high-end coverage for everyone -- brought about by Soviet-style central planning, not in response to free market forces.

From the perspective of the central planners who concocted Obamacare, minimum insurance coverage is the sine qua non of the statute. They want you to pay for coverage you will not need or ever use, so that the insurance carriers will have extra cash on hand to fund coverage for those who cannot afford high-end policies. This is where the laws of economics enter. By forcing all carriers to offer only high-end policies, the statute forced the carriers to raise their rates. By raising rates, the substandard policies -- with their lower rates -- could no longer be offered. If the government forced everyone to buy a Mercedes, when most are perfectly happy with an Acura, soon the Acuras would disappear from the market and most of us would be walking to work.

Now back to our pop quiz. When Congress was unable to agree on a budget for this present fiscal year because tea party Republicans saw this mess coming and wanted to dull its sting and congressional Democrats refused to negotiate with them, the federal government partially shut down. The Democrats and the mainstream media went wild. They claimed the government would default on its obligations and millions would suffer without the conveniences normally offered by the federal government. Yet, the only inconvenience we really heard about was the inability of a few hundred folks to visit federal parks and monuments. All federal services -- defense, the courts, the airports, the TSA (ugh), customs, and meat inspectors -- continued to operate as before the shutdown.

Yet, when Obamacare was rolled out earlier this month, more than 5,500,000 innocent Americans lost their health insurance, and the president knew of this in advance and lied about it repeatedly, and caused it with the one-size-fits-all mentality of his signature piece of legislation. Last week he caved and said that folks who have the old substandard policies could keep them for another year. This was too little and too late. He can no more change federal law than he can change the laws of economics. And he knows that.

In modern times, we have endured great lies told in the White House. One great lie was about a third-rate burglary, and it ended in a presidential resignation. Another great lie was about a private sexual affair, and it ended in a presidential impeachment. The present great lies are about the health and freedom of 5,500,000 Americans. How will this mess end?

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution. The most recent is "Theodore and Woodrow: How Two American Presidents Destroyed Constitutional Freedom."

Obamacare's Death Spiral

Richard Epstein

It has been a tumultuous two weeks since I last wrote about Obamacare’s moral blindness. The President’s dismal performance since that date has only confirmed my initial impression. He has refused to take full responsibility for the key policies embedded in that legislation. He has also endorsed naïve short-term fixes that do nothing to correct the fundamental design flaws of the Affordable Care Act.

Those two errors will give way to two larger public debates, one constitutional and one social. First, should the President’s new proposals be subject to attacks under the oft-discredited doctrine of substantive due process? Second, will the failures of Obamacare require a massive leap to a single-payer system to avert a return to some status quo ante that is morally and socially intolerable? It’s clear that we need to kill Obamacare and avoid a single-payer system at all costs.

The President’s Listless Apology

The President’s November 14 press conference reveals that he is unable to come to grips with the fatal flaws of his healthcare program. He claims that “in the first month, nearly a million people successfully completed an application for themselves or their families.” Deconstructed, what that really means is a paltry 27,000 people have been able to get coverage on the federal exchanges and some 79,000 others through the state exchanges. The million-person figure includes the 975,000 people deemed “determined eligible” for coverage that they have not purchased but, he assumes, they soon will.

The President thinks this shows the pent-up demand for his program. But he hasn’t addressed the composition of the applicant pool, which clearly attracts individuals with known healthcare conditions who will receive extensive public subsidies to join the ranks of the insured. There is no way that the government exchanges can remain viable without attracting large numbers of healthy young persons, all of whom are well-advised to stay away in droves, until they become sick and can sign up with the plan of their choice, no questions asked. Obamacare can only remain solvent with an enormous public subsidy. But the President compares apples to oranges when he disparages the private plans he considers substandard while he praises the efficiency of the public plan, even though it will require public subsidies. To him, taxpayer costs don’t matter.

The President fared no better when he claimed he misspoke in saying, repeatedly, that “if you like your current healthcare plan, you can keep it.” His tortured explanation had two parts. First, he did not focus enough on the individual market; second, the grandfather protection built into the ACA turned out to be “insufficient.” One key difficulty with the individual plan is that its ten categories of Essential Health Benefits are not met by the policies offered in the individual healthcare market. But as the HealthCare.gov website makes clear, “The Affordable Care Act ensures health plans offered in the individual and small group markets, both inside and outside of the Health Insurance Marketplace, offer a comprehensive package of items and services, known as essential health benefits.” The small group market covers firms with under 50 or 100 workers depending on the state. But the President never once discusses how Obamacare undermines both markets. Millions now find themselves in a similar bind with group plans.

The President is also flatly wrong to assume that the defects in plan structure are confined to the individual market. Nor can he claim that the grandfather provision just turned out to be “insufficient.” They were that way by design. From start to finish, the entire exception was a sham. The President has no patience for the “substandard” policies rolled out by the voluntary market, which may lose, or in many cases have lost, their grandfathered status the moment they introduced any material change in their coverage formulas or rate, which they routinely do. In addition, “most PPACA requirements apply to grandfathered plans,” including limitations on waiting periods and essential healthcare benefits, which lie at the root of the problem. The tragedy remains that it is far easier to force people out of healthcare plans that they want than it is to enroll them in healthcare plans that they don’t.

Possible Legislative Fixes

Public outrage and Democratic uneasiness has forced the President to back down from his hard-line position that would force millions of individuals with canceled polices to seek coverage on the dysfunctional government website. But once again, the President’s unyielding opposition to substandard coverage has made it impossible for him to beat a graceful retreat from his flawed program. The House just passed (with 39 Democratic votes) a Republican legislative plan from Michigan Congressman Fred Upton that would allow all insurers one more year to offer policies identical to those now in effect, without running afoul of the ACA.

The logistical difficulties that stand in the path of the implementation of this simple fix are serious. It’s not easy to close the floodgates after the water has raced downstream. The situation is made still worse because the President has vowed to veto this bill on the basis that, gasp, it lets insurance companies sell their “substandard” policies to new customers, who in his view should have their options limited solely to products offered for sale on the dysfunctional exchanges.

The President’s position raises yet again the thorny legal question of whether any president can suspend the operation of a law that he is supposed to execute. His legal position is ever so tenuous, because his fix doesn’t just suspend the law. It also requires insurers to inform consumers “‘what protections these renewed plans don’t include’ and alert customers to potentially better and more affordable insurance in the new federal and state marketplaces.” A major new disclosure program will need to be built from scratch over the Christmas holidays, on top of a reinstatement process that has to overcome huge hurdles within individual companies who have to reprice their revised policies before gaining regulatory approval on a state-by-state basis. No wonder their executives are up in arms.

Constitutional Complications

The President’s adamant position in the face of an industry-wide insurance meltdown ought to force a serious reconsideration of the constitutional issues at play over Obamacare. As everyone recalls, the constitutional challenges raised in the Supreme Court case over Obamacare, National Federation of Independent Business v. Sebelius,were over issues of Congressional power, not of individual rights. Chief Justice Roberts walked an implausible line when he held that Congress did not have the power to enact the legislation under its commerce power, but could do so under its power to tax and spend for the general welfare of the United States. From the outset, no one took seriously the view that the individual mandate posed any threat to the individual liberty protected under the Due Process Clause of the Fifth Amendment. Our New Deal legacy has left economic liberties to the tender mercies of the national and state governments. The individuals who are bound by minimum wage and mandatory collective bargaining laws have grounds to attack a statute that proclaims it protects patients and supplies them with affordable health care.

One real price of the first generation challenges under the tax and commerce powers is that they focused exclusively on a small slice of the overall legislation, thereby ignoring its most coercive and corrosive effects. But the extraordinary claims for government domination over individual rights comes front and center when the President announces that he will protect the fundamental right to healthcare by barring ordinary folks from acquiring coverage in the voluntary market, in order to force them to seek coverage they don’t want—like treating maternity care for men as an essential minimum benefit—in a nonfunctional government market that serves none of their personal needs.

The Obamacare fiasco now flunks Justice Holmes’ extreme rational basis test in the 1905 decision of Lochner v. New York: “I think that the word liberty in the Fourteenth Amendment is perverted when it is held to prevent the natural outcome of a dominant opinion, unless it can be said that a rational and fair man necessarily would admit that the statute proposed would infringe fundamental principles as they have been understood by the traditions of our people and our law.”

In the light of day, Obamacare is that bad, even if the minimum wage law is not. Even the most ardent defender of government power must concede that it is sickening when a president tells people without healthcare insurance that they must navigate his government websites or go without. If “the right to healthcare” is fundamental, Obamacare violates it. Delay here is no option. If left in place, every single structural problem that besets Obamacare today will continue to wreck innocent lives a year from now. Striking it down is an act of mercy for the American people.

Single Payer: From the Frying Pan into the Fire

Ironically, the incorrigible supporters of Obamacare have learned the wrong lesson from this debacle. Both Harry Reid and Nancy Pelosi run up the progressive flag and fault Obamacare for not going far enough in its refusal to adopt a “Single-Payer” healthcare system that would get rid of all those pesky remnants of individual choice that are now sinking Obamacare. But this proposal is sheer delusion. No sane person who has watched the government bollix its effort to implement Obamacare could tolerate the prospect of the government displacing the existing system of private healthcare insurance subject to state regulation.

What would that solve? It would not fix the expanded website that would function as the only portal into the healthcare system. It would not trim the outsized package of essential minimum benefits that have now turned the system upside down. It would not eliminate the immense network of cross-subsidies that has driven private plans to insolvency. And most certainly—with both Medicare and Medicaid in place—it could never implement the Canadian system in which national government makes block grants to the provinces who then have to allocate those dollars to various medical services consistent with budget caps on federal support.

Politically, it seems clear that the American public will not tolerate yet another round of healthcare reforms that cannot shoot straight. The real question is whether the Democrats in Congress will come to their senses and realize that Obamacare is DOA. It is possible to think of all sorts of mid-level fixes that might moderate the damages, but none has a prayer of success so long as this president remains in office. Deregulation and tax cuts are dirty words to Obama, but they are the only source of relief to a nation. The ACA has already done enough harm. The time to start over is now. 

ObamaCare Cuts Unions a Break

Today, The Wall Street Journal highlighted the fact that under the Affordable Care Act, unions are exempt from the "reinsurance tax." The tax, which is approximately $63 per person in 2014 is intended to capitalize a $25 billion reinsurance fund which will compensate exchange-participating insurers who are incurring higher costs than expected. The WSJ, detailed this tax break as follows:

In an aside in a Federal Register document filed this month, the Administration previewed its forthcoming regulation: "We also intend to propose in future rulemaking to exempt certain self-insured, self-administered plans from the requirement to make reinsurance contributions for the 2015 and 2016 benefit years."

Allow us to translate. "Self-insured" means that a business pays for the medical expenses of its workers directly and hires an insurer as a third-party administrator to process claims, manage care and the like. Most unions as well as big corporations use this arrangement.

But the kicker here is "self-administered." That term refers to self-insured plans that don't contract with the Aetnas and Blue Shields of the world and instead act as their own in-house benefits manager.

Almost no business in the real world still follows this old-fashioned practice as both medicine and medical billing have become more complex. The major exception is a certain type of collectively bargained insurance trust known as Taft-Hartley plans. Such insurance covers about 20 million union members, and four out of five Taft-Hartley trusts are self-administered.

There's no conceivable rationale—other than politics—for releasing union-only plans from a tax that is defined as universal in the Affordable Care Act statute. Like so many other ObamaCare waivers, this labor dispensation will probably turn out to be illegal.

And by the way, this favor harms all other taxpayers. The IRS assesses the reinsurance tax in annual tranches; it must collect $12 billion in 2014, $8 billion in 2015 and $5 billion 2016. So the smaller pool of ordinary people without a union card will pay a larger individual share of the same overall amount.

And so, ObamaCare's notoriety continues to grow at a record setting pace.

Surprise! Enrollments Through HealthCare.gov Fall Drastically Below Obama Adminstration's Expectations

Yesterday, The Wall Street Journal  reported that since its launch on October 1, fewer than 50,000 people have enrolled in private health insurance plans through healthcare.gov. The WSJ noted:

The figure is a fraction of the Obama administration's target of 500,000 enrollees for October. The early tally for the HealthCare.gov site, which launched Oct. 1, worries health insurers that are counting on higher enrollment to make their plans profitable.
Technology problems and design flaws have blocked many users from completing insurance applications or even creating accounts to use the site, which serves consumers in the 36 states where the federal government oversees the new health-insurance exchanges…
The administration had estimated that nearly 500,000 people would enroll in October, according to internal memos cited last week by Rep. Dave Camp (R., Mich.). An estimated seven million people nationwide were expected to gain private coverage by the end of March, when the open-enrollment period is set to end.
healthcare.gov.jpg

Additionally, according to the WSJ ,   approximately 49,000 people have enrolled in private health insurance plans in states running their own exchanges.

The Obama Administration has not confirmed these figures and has not decided whether it will release the demographic data of healthcare.gov enrollees. However, if the Obama Administration does not release such demographic data, the silence will signal that young, healthy Americans (on whose participation the program depends) are not enrolling in private insurance plans.

Why You Must Support Obamacare

Thomas Warns*

Don’t believe your own eyes or ears. You may have heard a lot in the news over the past few weeks about how Obamacare has been a massive flop. I’m here to tell you not to think about it. Let me explain to you why the critics are wrong.

The Affordable Care Act will be a tremendous success – who could be against a law providing affordable care for Americans? And I further know it will be a success because none other than the President of the United States has said so.

Yes it might be true that the President lied when he said the “shared responsibility payments” weren’t a tax, and it might be true that the President lied when he said if you liked your healthcare plan and doctor you could keep them, but what is truth in a fight for justice? The President couldn’t risk telling the truth to the American people, because they might not have liked it. A few white lies will be quickly forgotten since the President knows what is best for all of us.

Can you really trust those crazy Republicans and tea-partiers to do what’s right? They are so fixated on the $17,000,000,000,000 national debt that they can’t even see the wisdom of intervening into a multi-trillion dollar market in order to force Americans to buy more expensive health insurance that would be partially paid for with generous subsidies for low-income Americans! Despite reports from the Government Accountability Office saying otherwise, President Obama has given us his word that the Affordable Care Act won’t add a dime to the national debt, just like Social Security and Medicare. While I doubt the President is lying again, if he is, he sure has a good reason to do so for the greater good.

The Obamacare rollout hasn’t been perfect, but you can blame the Republicans for sabotaging it at every stage. A wise Democrat-majority Congress passed the Affordable Care Act in 2010 without a single Republican vote. The Act includes provisions whereby states can make their own healthcare exchanges, or allow the federal government to operate one for them. Making one of these exchanges is simple, evidenced by the federal government’s rollout, but 36 states, including tea-party hot beds like Illinois and Vermont, decided to allow the federal government to create exchanges for them. If they were really team players, they would have made superior healthcare exchanges at the state level rather than allowing the law as written to run its course. Why would supposed states’ rights Republicans in all of these states refuse to act with the federal government holding a gun to their heads and screaming “do this now, or we will do it for you!”? The only explanation is bad faith on their part.

One thing the President does need from you is more time. Imposing a one-size fits all national solution to a massive and complex national marketplace isn’t easy. With only three and a half years to prepare, it shouldn’t be a surprise that there have been some glitches on the healthcare.gov site. We couldn’t afford to delay opening the exchanges and make it look like the law wouldn’t work, even if the site contains glaring security risks and privacy intrusions, and gives customers false price estimates. Individual concerns are unimportant when compared to our overwhelming national interest.

The Constitution clearly states that healthcare is a fundamental right that everyone must be provided with courtesy of the federal government. Well then again maybe it doesn’t state that, but we shouldn’t have to pass an amendment to actually change what that document means in the first place. That right might include a pricey plethora of coverage options you think you don’t need, like pediatric care, maternity care, and substance abuse care, but I told you in the beginning not to think Dr. President Obama has done the thinking for you! Isn’t living in a nanny state easy?

 *Thomas Warns is a J.D. Candidate, class of 2015, at NYU School of law, Staff Editor on the NYU Journal of Law & Liberty , and author of the weekly column "Consider This a Warning."

Obamacare and Rational Expectations

Mario Rizzo*

At first glance this may seem to be an unlikely combination of topics. But the puzzle is this. Obama effectively promised Americans a free lunch. Everyone could keep their insurance coverage as it is if they liked it, but new benefits would magically spring from the legislation (See Richard Epstein’s post below.) There would be better coverage (as defined by the government), no exclusion for pre-existing conditions, coverage for “children” on their parents’ policies up to the age of 25, and the abolition of life-time caps of coverage, among other things. In effect, the American people were told that these benefits are free – presumably many thought they would come out of the profits of greedy insurance companies. Of course, now that the costs are beginning to be manifested, many people are shocked. (As a political strategy side-point, didn’t Obama realize that at least some of the costs would be revealed once the scheme got going?)

This is not the first time many Americans have fallen for the free lunch illusion, although given the relative unpopularity of Obamcare many have not in this case. Yet the puzzle remains: Why are people fooled again and again? Where are rational expectations when you need them?

My answer is in two parts. First, the political arena is not the market. In the political arena, the cost of errors made by an individual is zero to that individual. Since, generally speaking, my individual vote or publicly manifested opinion counts for almost nothing in determining whether legislation is successfully passed, my personal errors in understanding the legislation do not affect the costs that will ultimately be imposed upon me. It is very different in the marketplace because if I make a mistake in understanding which washing machine or refrigerator is best for me, I will suffer costs individually.

Second, legislation is often complex – Obamacare is among the most complex laws ever passed. Companies have arisen to help employers understand the implications of the law.  (Of course, they charge for the service.) Relatedly, each promise of a free lunch is different. The patterns of interaction and cost shifting are not exactly repeated in all cases in which the voter is fooled. The rational expectations hypothesis, however, assumes that the structure of the world remains unchanged period after period. If you are experiencing exactly the same “game” over and over, you may eventually learn the structure of the underlying mechanism that producing the outcomes.  But this is not what is happening. The politicians are, in turn, smart enough to complicate matters.  Even when repeated patterns do exist (which they always do at some level), the costs of piercing complexity to find these patterns are high for the typical citizen.

The bottom line is that it is vastly more likely that the public will fall for the free-lunch fallacy in the political arena than in the market place, however imperfect people may be in all aspects of life.

 

*Dr. Mario J. Rizzo is associate professor of economics and co-director of the Austrian Economics Program at New York University.  He received his BA from Fordham University, and his MA and PhD from the University of Chicago.  He was also a fellow in law and economics at the University of Chicago and at Yale University.  He currently lectures for the Institute for Humane Studies and is an adjunct scholar of the Cato Institute. Professor Rizzo is also a member of the NYU Journal of Law & Liberty's Board of Advisors.